California Punitives by Horvitz & Levy

  • Rojas v. Akopyan: Plaintiffs Get Another Bite at the Apple After Failing to Prove Case for Punitive Damages

    The California Court of Appeal (Second District, Division Eight) issued this unpublished opinion yesterday, affirming a trial court order granting a new trial on the issue of punitive damages.

    The plaintiffs obtained a jury verdict for $225,000 in punitive damages, but the trial court granted a new trial because the plaintiffs failed to present sufficient evidence of the defendant’s financial condition. As we have mentioned before, it is surprising how often plaintiffs overlook this requirement of California law, and forfeit punitive damages as a result. In this case, the plaintiffs presented evidence of the defendant’s income, but not expenses or liabilities. The Court of Appeal noted that, under California law, evidence of expenses and liabilities are necessary to create a complete picture of the defendant’s financial condition.

    One thing strikes me as odd about this opinion. Under California law, when a plaintiff fails to present evidence of the defendant’s financial condition, the proper remedy is to enter judgment in favor of the defendant on the punitive damages claim. (See Kelly v. Haag (2006) 145 Cal.App.4th 910, 919-920; see also these four unpublished opinions from 2007.)

    In other words, the plaintiff only gets one chance to prove its claim for punitive damages, and if the plaintiff fails to present sufficient evidence to support the claim, the plaintiff does not get to try again. Game over. That rule applies not only to punitive damages claims, but to any situation in which the Court of Appeal reverses a judgment based on a failure of proof. (See McCoy v. Hearst Corp. (1991) 227 Cal.App.3d 1657, 1661.)

    So why did the plaintiffs in this case get a new trial after failing to present sufficient evidence the first time around? I’m not quite sure. The opinion doesn’t say. Perhaps the defendant never argued for judgment as a matter of law, or perhaps the defendant raised the argument but the Court of Appeal neglected to address the issue. If it’s the latter, a petition for rehearing may be in order.

  • Major v. Western Home: California Court of Appeal Affirms $646,000 Punitive Damages Award

    The California Court of Appeal issued this published opinion today, affirming a punitive damages award of $646,471.53, roughly equal to the compensatory damages.

    The case required the court to interpret a provision of California’s punitive damages statute, Civil Code section 3294. That statute provides that punitive damages cannot be awarded against a corporation based on the wrongful acts of a corporate employee unless an officer, director, or managing agent of the corporation either participated in, authorized, or ratified those acts.

    The defendant was an insurance company that hired a third-party claims administrator to process the plaintiffs’ claim for the destruction of their home by fire. The insurer paid benefits representing the full limits of the policy at the time of the fire, but a jury nevertheless found that the company acted in bad faith by delaying the payment of benefits to the plaintiffs, and by withholding about $30,000 in additional benefits above the policy limits (which the plaintiffs claimed they were entitled to because the insurer raised the policy limits after the loss).

    On appeal, the primary punitive damages issue was whether the person who committed the wrongful conduct, an employee of a third-party claims administrator, qualified as an “managing agent” of the insurer, such that her conduct could subject the company to punitive damages. The Court of Appeal relied heavily on the California Supreme Court’s 1979 decision in Egan v. Mutual of Omaha, which concluded that punitive damages can be awarded against an insurance company based on the acts of a claims representative if the claims rep has the effective authority to set corporate policy. The Court of Appeal extended Egan a step further. It held that the employee of the third-party administrator had the effective authority to set policy for the insurer, and therefore subject the insurer to punitive damages. The court did not explain how the conduct as issue could effectively set corporate policy when the actual corporate policies of the insurer prohibited that conduct.

    After concluding that the plaintiff had satisfied the managing agent requirement of section 3294, the court went on to discuss the amount of the punitive damages award. The court concluded that a relatively low punitive damages award was appropriate because the harm to the plaintiff was purely economic, the case did not involve a disregard of health or safety, and there was no evidence that the defendant had ever engaged in similar misconduct towards other insureds. The court also concluded that the analogous civil penalty for insurer misconduct, a fine of $10,000, also weighed in favor of a relatively low punitive damages award. Accordingly, the court concluded that a one-to-one ratio of punitive damages to compensatory damages was appropriate and did not raise due process concerns.

    Finally, the court examined whether the jury’s verdict was inconsistent because the jury found the defendant acted with “oppression” (one of the grounds for imposing punitive damages under section 3294), but also found the defendant did not act with “malice.” The court found no inconsistency, because the statutory definition of malice requires that the defendant acted with a “willful and conscious disregard” of the rights and safety of others, whereas oppression requires only a finding of “conscious disregard.” The court did not explain exactly how the defendant’s conduct could have exhibited a conscious disregard for the plaintiffs’ rights without also being willful.

    Full disclosure: Horvitz & Levy represents the defendant, Western Home Insurance Company.

  • Food Pro v. Farmers: California Court of Appeal Affirms Denial of Punitive Damages

    The California Court of Appeal (Sixth District) issued this published opinion yesterday affirming a summary adjudication order that rejected the plaintiff’s claim for punitive damages in an insurance bad faith case.

    The Court of Appeal reversed the trial court’s ruling that the insurer had no duty to defend its insured from a third party lawsuit, but the Court of Appeal agreed with the insurer that the plaintiff failed to create a triable issue of fact on its entitlement to seek punitive damages.

    The court emphasized that, under California law, punitive damages are not available unless the plaintiff demonstrates, by clear and convincing evidence, that the defendant engaged in despicable conduct demonstrating an extreme level of indifference to the plaintiff’s rights. The court also noted that punitive damages are not available if the defendant’s conduct is merely consistent with the hypothesis that the defendant acted despicably – – the evidence must be inconsistent with the hypothesis that the defendant simply made a mistake or an honest error in judgment.

    The plaintiff in this case presented an expert declaration cataloging all of the insurer’s bad acts. The Court of Appeal held, however, that all of those alleged acts were consistent with the theory that the insurer was negligent or overzealous, but none of them demonstrated conclusively that the insurer acted with an evil motive or an extreme indifference:

    The asserted bad acts could be found to be negligent (an incomplete investigation and reliance on erroneous facts), factually and legally erroneous (an incorrect assumption regarding breadth of exclusion and failure to give proper weight to relevant facts), and even overzealous. However, Food Pro presented no evidence that “could be described as evil, criminal, recklessly indifferent to the rights of the insured, or with a vexatious intention to injure.” [Citation omitted.] Although we disagree with Farmers’ position regarding its duty to defend, Farmers relied upon two separate coverage opinions by two different law firms that arrived at the same conclusion regarding the lack of coverage. Moreover, the trial court agreed with Farmers, and the position cannot be deemed so unreasonable as to evidence malice, fraud, or gross negligence.

    This opinion doesn’t really add much to the body of California law regarding the standards for imposition of punitive damages. Nevertheless, my sense is that trial courts sometimes lose sight of how stringent those standards are, so it’s nice to see the Court of Appeal issue this published opinion as a reminder.

  • Further Thoughts on Brewer and Punitive Damages in Wage and Hour Cases

    Our colleague Felix Shafir has additional thoughts on the recent Brewer opinion. Take it away, Felix:

    Wage Law, run by Michael and Mark Walsh of Walsh & Walsh, P.C, has a thoughtful post about the Brewer case we blogged about two days ago, in which the Court of Appeal recently held that punitive damages were unavailable for violations of the California laws governing meal and rest breaks, minimum wages, and pay stubs.

    Wage Law describes the arguments some employers and employees advanced prior to Brewer over whether the new right-exclusive remedy rule applied to preclude punitive damages in certain wage and hour cases. Interestingly, in setting out the arguments that employees would occasionally make on this issue, Wage Law mentions Bender v. Darden Restaurants, Inc. (9th Cir. 2002) 26 Fed.Appx. 726, where a jury previously awarded punitive damages in a wage and hour case involving meal and rest break violations.

    If the California Supreme Court were to take up the issue of whether the new-right, exclusive remedy rule barred the recovery of punitive damages in certain wage and hour cases (for example, by granting review in Brewer or Savaglio v. Wal-Mart, a case we blogged about several months ago that is currently pending before the Court of Appeal and in which the parties are arguing over a similar punitive damages issue), we suspect Bender would offer little guidance. In Bender, the Ninth Circuit’s opinion (which the court did not even select for publication) never once mentioned the new right-exclusive remedy rule, much less offered any substantive analysis addressing whether that rule bars punitive damages sought for violations of California’s Labor Code. As the Supreme Court has explained, a court’s “‘opinion is not authority for a proposition not therein considered.’” (Elisa B. v. Superior Court (2005) 37 Cal.4th 108, 118.)

    For the same reason, another case mentioned by Wage Law, Bureerong v. Uvawas (C.D. Cal. 1996) 922 F.Supp. 1450, is equally unlikely to provide the Supreme Court with any legal guidance about the new right-exclusive remedy rule. In Bureerong, a district court declined to strike a claim for punitive damages in a lawsuit alleging many causes of action, including several for violations of the Labor Code. Id. at pp. 1461, 1480-1481. Like the Ninth Circuit in Bender, the district court in Bureerong never examined whether the new right-exclusive remedy rule barred punitive damages in the case. In fact, the plaintiffs in Bureerong “did not tie their punitive damages claim . . . to any particular cause of action” (id. at p. 1480) and, given that those plaintiffs also asserted negligence causes of action for which punitive damages would ordinarily be available (see id. at p. 1461), there is no way to determine whether the plaintiffs were attempting to recover punitive damages solely on their tort causes of action or whether they were also pursuing punitive damages for alleged violations of the Labor Code.

    Interestingly, although the new right-exclusive remedy rule has been a staple of California jurisprudence for over 150 years (see, e.g., Russell v. Pacific Railway Co. (1896) 113 Cal. 258, 261; Ward v. Severance (1857) 7 Cal. 126, 129), our research indicates that California federal or state courts primarily began examining how this rule applies in wage and hour cases relatively recently (i.e., within the past 20 years). Perhaps this is because the marked increased in the number of wage and hour lawsuits, especially wage and hour class actions, is an almost equally recent phenomenon. (See, e.g., Time is Big Bucks, Class-Action Wage Lawsuits Show [noting recent growth in wage and hour class actions filed in federal court].) Simply put, the issue of whether punitive damages are barred by the new right-exclusive remedy rule may be arising far more often than it ever did in the past because many more employees are pursuing wage and hour claims today.

  • Brewer v. Premier Golf Properties: California Court of Appeal Reverses Punitive Damages Award in Wage & Hour Case

    When it rains, it pours. While the blogosphere was already buzzing about today’s oral argument in Williams III (see below), the California Court of Appeal (Fourth District, Division One) issued a significant punitive damages decision of its own, dealing with the availability of punitive damages for alleged violations of the California statutes and regulations governing meal and rest breaks, minimum wages, and pay stubs. My colleague Felix Shafir provides this summary:

    In Brewer v. Premier Golf Properties, a former waitress sued her employer for, among other things, denying her meal and rest breaks mandated by law, failing to pay her wages for the hours she worked, and not providing her with accurate itemized wage statements. A jury found in her favor on these allegations and awarded the plaintiff $195,000 in punitive damages (among other relief). The Court of Appeal reversed the punitive damages award based on two rationales. First, the court held that the “new right-exclusive remedy” rule (whose effect on punitive damages awards we blogged about several months ago – – here here and here) precluded an award of punitive damages. As the court explained, under that rule, “‘[w]here a statute creates new rights and obligations not previously existing in the common law, the express statutory remedy is deemed to be the exclusive remedy for statutory violations, unless it is deemed inadequate.’” The court determined that the Labor Code statutes regulating pay stubs and minimum wages, as well as the statute and regulations governing meal and rest breaks, created new rights that did not previously exist in the common law. The court then held that those statutes provided the express and exclusive remedy for violations of meal/rest break, minimum wage, and pay stub laws.

    The court also held punitive damages would be unavailable in the case even if the Labor Code statutory scheme did not provide the exclusive remedy. The court explained that punitive damages “are ordinarily recoverable only in ‘an action for the breach of an obligation not arising from contract.’” Applying this rule, the court decided that “the Labor Code provisions governing meal and rest breaks, minimum wages, and accurate pay stubs constitute statutory obligations imposed only when the parties have entered into an employment contract and are obligations arising from the employment contract,” and thus held that punitive damages could not be recovered for violations of these provisions.

    UPDATE: The Complex Litigator weighs in on Brewer. And Wage Law too.

  • Lu v. Qi: California Court of Appeal Grants Rehearing and Affirms a Punitive Damages Award It Had Previously Reversed

    Here’s something you don’t see every day. Or even every year. It’s not often that the California Court of Appeal grants a petition for rehearing and completely changes directions from its original opinion. But that’s exactly what happened in this case. Last month, the Second Appellate District, Division Five, issued an unpublished opinion reversing a $180,000 punitive damages award because the plaintiff failed to present meaningful evidence of the defendant’s net worth. (See our prior post discussing that decision.)

    Yesterday, the court issued a new opinion affirming the punitive damages award in its entirety. Here’s what happened: the defendant had filed separate appeals, both from the judgment and from a subsequent order denying the defendant’s motion to vacate the judgment. In the original opinion, the Court of Appeal concluded that the motion to vacate the judgment was untimely, and therefore the defendant was entitled to no relief on its appeal from the denial of that motion. But the court nevertheless granted relief on the defendant’s appeal from the judgment itself. The Court of Appeal never noticed, however, that the appeal from the judgment was untimely. The plaintiff raised that issue on rehearing and the court, realizing its mistake, granted rehearing and issued a new opinion. Thus, the court ended up affirming an $180,000 punitive damages award that would have been reversed if the defendant had not blown (a) the deadline for appealing from the judgment and (b) the deadline for filing a post-judgment motion to vacate.

  • Monroe v. Singh: Unpublished Opinion Disallows Punitive Damages In Auto Accident Case

    The California Court of Appeal, Third Appellate District, issued this unpublished opinion yesterday, affirming a trial court order that granted summary adjudication in favor of the defendant on the plaintiff’s punitive damages claim.

    The case involved a low speed auto accident. The defendant collided with one car at about 15 to 20 mph and then kept driving, hitting a second car a few seconds later. The driver and passenger of the second car sued and sought punitive damages, but the trial court granted the defendant’s motion for summary adjudication on the punitives claim, finding there was no evidence that the defendant engaged in the sort of “despicable” conduct that could support punitive damages under California law.

    The plaintiffs appealed, arguing as a matter of law that anyone involved in a hit-and-run accident is guilty of the sort of despicable conduct. The Court of Appeal disagreed. It emphasized that punitive damages are reserved for only the most egregious misconduct, and are rarely allowed in unintentional tort cases. The court concluded that a “garden-variety hit-and-run incident,” where the defendant was not speeding and was not driving under the influence, could not possibly support a finding of despicable conduct.

    Full disclosure: Horvitz & Levy represented the defendant on appeal.

  • Shapiro v. Clark: Court of Appeal Reverses Order Requiring Defendant to Bond Punitive Damages Portion of Default Judgment

    This published opinion by the California Court of Appeal (Sixth District) involves a fairly obscure corner of punitive damages law, namely, whether a trial court can require a defendant who is seeking relief from default to post a bond to cover the amount of the plaintiff’s punitive damages claim. The short answer is, “no.”

    The trial court entered a default judgment against Pamela Clark and two co-defendants, holding them jointly and severally liable for $300,000 in compensatory damages and $1.5 million in punitive damages. Clark alone sought relief from default, providing a variety of reasons why she should be excused from her failure to answer the complaint, including the fact that her adult son died unexpectedly during the time period when her answer was due. The trial court entered an order denying Clark’s request for relief from default unless she agreed to post a bond of $1.8 million with the superior court for the duration of the litigation.

    The Court of Appeal acknowledged that trial courts have discretion to require a party to post a bond in order to obtain relief from a default judgment. The bonding requirement protects the plaintiff in the event of an eventual recovery. But the court found that the bond required by the trial court in this case was excessive. The court noted that the bond grossly exceeded the amount of compensatory damages at issue, and the bond could not be justified based on the plaintiff’s prospect of obtaining punitive damages:

    A punitive damages award is “essentially a windfall for plaintiffs that the law permits for public policy reasons.” . . . We question whether a bond protecting only a plaintiff’s interest in a “windfall” can ever constitute a reasonable condition . . . We have found no case in which such a condition was imposed, let alone upheld on appeal. Nor do we detect any circumstance in this case that might justify such a condition. . . . The essential function of the law is to strike a balance between competing interests and policies. As against the policy strongly favoring adjudication on the merits, and appellant’s interest in securing such an adjudication, respondents’ interest in securing the payment of a windfall, and the policy of punishing wrongdoers through civil actions in tort, lack sufficient weight to sustain the order under review. We conclude that insofar as the amount of the bond exceeded an amount reasonably anticipated to make the plaintiff whole, its imposition as a condition of relief was an abuse of discretion.

    Thanks to Ben Shatz at Manatt, Phelps & Philips for alerting me to this decision.

  • Miller v. Mercury: Unpublished Opinion Affirms Order Granting Motion to Strike Punitive Damages Claim

    The California Court of Appeal (Second Appellate District, Division Seven) issued an unpublished opinion yesterday that highlights an underutilized defense strategy. The defendant in this case successfully moved to strike a punitive damages claim from the plaintiffs’ complaint on the ground that the plaintiffs failed to plead that claim with specificity. The Court of Appeal affirmed. Here’s the relevant portion of the Court of Appeal’s opinion:

    It is settled law that in order to state a claim for punitive damages the pleadings require specificity and not generalities. This means pleading the “facts” with certainty and specificity. Miller’s SAC is simply wanting in this regard. In essence, it merely alleges that Mercury disagreed that there was a potential for coverage under the policy and simply refused to provide a defense as requested. As the cases point out, even a mistaken belief as to lack of coverage and denial thereof does not warrant imposition of punitive damages. We further note that the plaintiff’s burden of proof with respect to punitive damages, as well as the requirement of specificity in pleading, is that of “clear and convincing evidence” which is an elevated standard over the usual civil burden of proof by a preponderance of the evidence. Additionally, it has been historically held in appellate decisions that punitive damages are generally disfavored in the law. This decisional attitude is an additional reason for requiring specificity in pleading facts to warrant punitive damages. The Millers have simply failed in their effort to convince this court that punitive damages should be allowed under the facts and status of the pleadings in this case.

    UPDATE (7/16/07): Spencer Kook at Cal Insurance Regulation has a post about this case, in which he links to our post. In response to our observation that this defense strategy is underutilized, Spencer notes that his firm (Barger & Wolen) employs this strategy and he has seen it used regularly by others as well.

  • Lu v. Qi: Another California Punitive Damages Award Reversed Because the Plaintiff Failed to Present Evidence of the Defendant’s Net Worth

    The California Court of Appeal (Second Appellate District, Division Five), issued an unpublished opinion yesterday reversing a punitive damages award because the plaintiff failed to present evidence of the defendant’s net worth. The court reversed the award with directions to enter judgment for the defendant on the punitive damages claim; the plaintiff doesn’t get a new trial, because a party who fails to present evidence on an element of its claim doesn’t get a second bite at the apple. (See Kelly v. Haag (2006) 145 Cal.App.4th 910, 914.)

    As we have observed before, it is surprising how often plaintiffs’ attorneys overlook this rule, which has been part of California law since 1991. This is the fourth opinion already this year reversing a punitive damages award on this basis.